3 Ways to Consolidate Credit Card Debt
Credit card debt. There, I said it. For many, these three words create immediate anxiety. But it doesn’t have to anymore. Consolidating credit card debt can help you to simplify or reduce your monthly credit card payments and save money each month. There are multiple ways to consolidate debt so take a breath. The first step is to decide what’s going to work the best for you based on how much you want to pay off, what your current financial situation looks like, and how strong your credit history is.
Simply put: consolidating credit card debt is when you combine multiple credit card balances into a single monthly payment that ideally has a lower interest rate than what you’re currently paying. To help you decide if credit card consolidation is right for you, here are several methods to consider:
Apply for a personal loan
A personal loan is one way to consolidate debt. The funds from a debt-consolidation loan can be used to pay off your credit card balances. Some of the benefits are that instead of making multiple credit card payments each month, you make one payment for the personal loan.
If you have good credit, it can also lowers the hefty interest rates that big banks can rack onto your credit cards. Personal loans offer flexible repayment terms, so you can select the one that’s right for your budget. Many lenders offer the option of applying for pre-qualification, so you can shop around to see what your potential options are without impacting your credit scores. Remember not to rush or pressure your process, shop around until you find something that’s right for you. This is all about relieving the stress, not adding to it!
Use a balance transfer credit card
A balance transfer lets you move balances from one or more credit card accounts to a different card. Balance transfer credit cards often offer an introductory 0% APR on balances you transfer within a certain amount of time. That means that you’ll have a set amount of time – sometimes up to a year! – to pay off the balance without paying any interest at all. You might find that you’re able to pay off the balances you transfer before the introductory period expires and avoid paying interest charges on the transferred balance altogether.
One thing to keep an eye out for is the balance transfer fees. Some cards charge a fee when you balance your transfers from one bank to another, which will add to the debt you must repay. Also, the amount you transfer — including any fees charged — can’t be higher than your credit limit, which may not be high enough for you to pay off all your debt. That said, the fees are often minimal compared to what you’d be paying in interest rates.
Keep in mind that you may not be allowed to transfer balances between cards issued by the same lender. And if you opt for a balance transfer, it’s especially important to pay on time because late payments may cancel the introductory APR offer.
Ask a friend or family member for help
Depending on how much money you owe and what your overall financial picture looks like, it may make sense to ask a friend of family member to lend you the money. I know, that might not feel very comfortable, but it may be your best bet. And there’s no shame in it. We all need support at one point or another.
If you opt for this method, it’s important to be sure the loan terms and repayment plan are clearly outlined, just as they would be if you were getting a loan from a financial institution. Consider writing out a loan repayment so both parties are on the same page and there’s no room for miscommunication.
What’s the benefit? Well, when you borrow money from somebody you know, you don’t have to meet minimum eligibility requirements to qualify for the loan, and you may be able to get a lower interest rate than you would from a bank or credit union.
Consolidating your credit card debt into a single payment may seem like the solution to your financial troubles, especially if you can get a lower rate. But paying off existing debt won’t do you much good if you continue to rack up new debt. So take your time when making these decisions. Sit down and visit your budget – see what’s realistic for you before you commit to a new credit card or loan.
Before consolidating your credit cards, come up with a plan that will allow you to live within your means and help you avoid going into debt again. Then you can choose the credit card consolidation method that’s right for you. If you’d like a little more support with this, know that we’re always here to walk you through your options. Shoot us an email at email@example.com to set up a free consult call.